Vanguard 3-Fund Allocations -- Duplication of investments

[AdamSTL]

Husband of busy ICU Doc., 2nd year attending.

We are working to set up, organize, and simplify to a 3-Fund portfolio. We've read a few bogelhead books and poured over numerous posts and advice on how to execute. We also have a pretty good spreadsheet in place to track our investments and allocations going forward. As we finalize our allocation percentages and decide what investments go into each account, a few questions have come up that we can't seem to find clear advice on.

1. When using a 3-Fund strategy what level of duplication of investments in certain accounts is recommended? We do have a pretty good idea of what investment goes into each kind of account. For example, it's unclear the wisdom of both of us having VTSAX in all of our "Buckets" (Taxable, Tax Exempt, Tax-Deferred).
   • Investments
     • VTIAX
     • VTSAX
     • VBTLX
   • Accounts we have and are considering:
     • Roth IRA (Hers)
     • Roth IRA (Mine)
     • Taxable Brokerage (Combined)
     • 403b (Hers)
     • 401k (Hers-no longer can contribute, will probably rollover to 403b)
     • 401k solo (Mine)
     • 457b(Hers - Considering opening)

Thanks for any advice.
Adam

[Larry Ragman]

It is appropriate to consider your asset allocation across all of your various account types. But you do also have to consider asset location. As a thumb rule (and no big deal if you did it another way), you would put your bond fund in tax deferred. If for some reason your bond allocations exceeds your available tax deferred head room (unlikely) then consider a intermediate term muni fund in taxable. Don't put bonds in Roth because you want your highest volatility highest return assets there.. The international fund could go to either taxable or tax deferred/Roth. And generally total stock market is best for taxable, but be sure to fill up the tax deferred accounts regardless, including stocks for any headroom available after the bond allocation.

So, might this lead to some duplication? Sure, you might have total stock market index fund in taxable, 401k, and Roth. Generally no big deal. The only case I can imagine when it might matter is for tax loss harvesting. But that is a special case, and it is not three fund investing. Tax Loss Harvesting with Fidelity: A Step by Step Guide | White Coat Investor

Go for it. That is, decide what asset allocation you want, and then distribute among the various account locations in accordance with your plan. Don't worry about duplication of funds in different locations as long as the over all allocation is right.

Last thought on your possible account types. The 457 has a number of other practical considerations unrelated to asset allocation. 457 Deferred Compensation Plan | White Coat Investor

[AdamSTL]

Thanks for the quick response.

Your advice on fund allocation makes sense and aligns with what we've read and understand. Our sense was that the duplication would be okay. We've got our target allocation graphs and our current allocation graphs that allow us to understand based on our percentages, total asset allocation, and total account bucket allocation.

The next issue will be to understand what investment options are available with our 403b/401k's. We might have to go with something that is close to our selections above. However, I do think our fidelity 401k has a brokerage link sub-account that we can use to go outside of the hospital's investment selections.

I appreciate your advice.

Thks,
Adam

[Tim]

One point I try to make, when one of the partner's has a significant amount more or less, I try to make a "family decision" based on ones personal choice.
It is unusual for both to have exactly the same reactions from a risk or growth standpoint. If the desire in pre-tax is equal distribution or if my wife wants growth, so be it. I try to call "My tax protected "Ours" and her's "Her's". It goes a long way towards motivating and staying on track.

[PhysicianOnFIRE]

I made a spreadsheet to help one balance a three (or more) fund portfolio across numerous accounts. You can download it here:

[AdamSTL]

Thanks for the responses.

I've actually downloaded your spreadsheet, thank you for creating that. I used yours and another as inspiration to create our own with some different graph calculations and a bit more simple for our uses. BTW I appreciate your Phy on fire site, a great resource.

Thks,
Adam

[Tangler]

You are going to win. You are ahead of 99.9% of people.

Simple trumps complex.

Low cost index funds & done.

A few suggestions: for tax efficiency consider bond funds in IRA (not Roth)

Put VTSAX and VXUS in Roth & taxable.

Since you guys are youngish I would consider a high stock allocation + 3-6 mo cash EF + disability insurance.

Time = friend. (Lots of human capital)


make an IPS with:

1. housing plan
2. Insurance plan (term life, disability, umbrella)
3. Emergency plan (3-6 mo cash EF)
4. Investment plan (3 fund portfolio, save 20%+ of income)
5. kids college plan
6. student loan plan
etc.

You may have done all this already and i might be leaving out a few points but you get the idea.

[PacificRunner]

Don't put bonds in Roth because you want your highest volatility highest return assets there..

Go for it. That is, decide what asset allocation you want, and then distribute among the various account locations in accordance with your plan. Don't worry about duplication of funds in different locations as long as the over all allocation is right.

Bonds in Roth is just fine. If you put only high return assets in your Roth, what you’re really doing is increasing your tax-adjusted asset allocation to a more aggressive ratio. No free lunch. However, this is penny pinching and if you follow the traditional dogma mentioned on this thread and throughout WCI it’ll serve you perfectly well. Find a system that works and stick to it.

[Tim]

You got this. The only suggestion in your modeling is to play through the maintenance.
* monthly investments- automate
* rebalancing- make your plan. Some use new contributions and some use a periodic in retirement accounts.
* TLH only works in taxable for specific tax lots.
The point is to consider the future effort as well as the plan. (Which is exactly what you are doing.).

[Larry Ragman]

Bonds in Roth is just fine. If you put only high return assets in your Roth, what you’re really doing is increasing your tax-adjusted asset allocation to a more aggressive ratio. No free lunch. However, this is penny pinching and if you follow the traditional dogma mentioned on this thread and throughout WCI it’ll serve you perfectly well. Find a system that works and stick to it.

Yes, as I said in my full post, any reasonable plan works. Regarding Roth, I agree with your characterization, but that is actually the point of the thumb rule. Longer time horizon (because generally want to spend tax free money last in retirement); more aggressive posture. I would say a better counterpoint to the Roth thumb rule would be to have bonds in Roth if your plan envisions spending Roth funds judiciously along the way (e.g., to stay below an IRMMA threshold). In that case it would be reasonable to have some bonds in Roth for risk mitigation just within the Roth itself.

[Tim]

“ (e.g., to stay below an IRMMA threshold). In that case it would be reasonable to have some bonds in Roth for risk mitigation just within the Roth itself.”

To an extent, keeping bonds in Roth seems to be letting the tax tail wag the dog. Sounds more like cash stash and stock/bond choice.

[childay]

The next issue will be to understand what investment options are available with our 403b/401k's.

Yeah what you do will depend on investment options available. Some plans have S&P500 funds but not total market for instance. May not have international etc.

I myself try not to duplicate same funds in taxable / tax protected for TLH purposes as Larry mentions. But you can always worry about that later.

[mamaham]

Yay! Another spouse! There aren’t many of us… busy doc husband so I take care of the finances. WCI has been invaluable for us. So you’re on the right track being here!

I agree with others. Start with what your company has and go from there. Not all plans offer index funds so you may not be able to do a true three fund portfolio.

[AdamSTL]

Thanks for all the replies. We lucked out and her 403b plan offers two very similar vanguard index funds, VBMPX(ER=.03) and VIIIX(.02).

From what I can tell from Morningstar Xray, they track very similarly to the VTSAX and VBTLX index funds we had originally selected for other accounts. So, we will have a 4-fund strategy: VTIAX, VTSAX, VBMPX, VIIIX. The portfolio is falling into place as we dial in and fill up our respective buckets to get our desired allocation mix of assets and of accounts.

Looks like it might take a little while to get our desired asset and account allocation mix:

Target Account Mix:

• Tax-Deferred Bucket = 45%
• Taxable Bucket = 45%
• Tax-Exempt Bucket = 10%

Target Asset Mix:

• US Stocks = 70%
• International Stocks = 20%
• Bonds = 10%

Thanks again for your responses. Looking forward to getting this setup and taking our hands off the wheel, except perhaps once or twice a year for rebalancing and taxes.